A damning report by Britain’s financial watchdog has declared the country’s £14 billion pension industry as not fit for the purpose.

The report wasn’t entirely unexpected, with media articles surfacing over the last few months accusing the industry of scamming pensioners and warning of an official investigation. The FCA report, published today, confirms that insurers are grabbing around £230,000 a year by luring pensioners into rip-off deals.

Investigators from the FCA found that 150,000 retirees every year are being mis-sold annuities which lose them 10 per cent of potential income. Moreover, 10 per cent of the number will lose 15 per cent and five per cent will lose up to 20 per cent.

Worst of all, those with ongoing health problems and those who smoke will lose even more. On average, around 70 per cent of retirees who convert their pension pots or savings into annuities stay with their original insurers, with financial advisors linked to the insurance companies failing to point out better deals.

As a result of the report, the regulator will launch a full investigation into insurance companies' methods used to rip off their customers, and the investigation will examine the profits generated from pension savers. Harsh fines for those insurers found to be deliberately misleading clients are being threatened.

According to an FCA spokesperson, the market is clearly failing its customers, is fundamentally flawed and must change. Deals suggested by an insurer with which the client has saved offer notoriously poor value, and quoted annual incomes don’t allow for savers in poor health even although they qualify for increased payouts.

The report notes that 80 per cent of those who accepted their insurers’ quote would have been better off elsewhere, and that insurers make much larger profits from sell-ons to existing customers than they do from new clients. Jargon and hard-selling are also under investigation, and the FCA’s report will be published early next year.